TITLE 10. FINANCE AND FINANCIAL INSTITUTIONS

STATE CORPORATION COMMISSION

Final Regulation

Title of Regulation: 10VAC5-240. Sales-Based Financing (adding 10VAC5-240-10 through 10VAC5-240-40).

Statutory Authority: § 6.2-2237 of the Code of Virginia.

Effective Date: October 1, 2022.

Agency Contact: Dustin Physioc, Deputy Commissioner, Bureau of Financial Institutions, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone (804)786-0831, FAX (804) 371-9416, or email dustin.physioc@scc.virginia.gov.

Summary:

The amendments (i) define terms; (ii) require sales-based financing providers and sales-based financing brokers to register with the State Corporation Commission; and (iii) effectuate the disclosure requirements of Chapter 22.1 (§ 6.2-2228 et seq.) of Title 6.1 of the Code of Virginia. Changes to the proposed regulation, clarify definitions and instructions for using the Sales-Based Financing Disclosure Form.

AT RICHMOND, SEPTEMBER 21, 2022

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2022-00035

Ex Parte: In the Matter of Adopting

Regulations Governing Sales-Based

Financing under Chapter 22.1 of

Title 6.2 of the Code of Virginia

ORDER ADOPTING REGULATIONS

On May 4, 2022, the State Corporation Commission ("Commission") entered an Order to Take Notice of a proposal by the Bureau of Financial Institutions ("Bureau") to adopt regulations pursuant to Chapter 22.1 of Title 6.2 (§ 6.2-2228 et seq.) of the Code of Virginia ("Chapter 22.1"). The Bureau's proposal also contained proposed formatting for a disclosure form ("Disclosure Form") that sales-based financing providers are required to give to sales-based financing recipients pursuant to § 6.2-2231 of the Code of Virginia ("Code"). Chapter 22.1 establishes registration and other requirements for sales-based financing providers and sales-based financing brokers. Chapter 22.1 became effective on July 1, 2022, and the deadline for registering with the Commission is November 1, 2022. The instant regulations implement Chapter 22.1 by, among other things, defining certain terms and effectuating the disclosure requirements of § 6.2-2231 of the Code.

The Order to Take Notice, proposed regulations, and Disclosure Form were published in the Virginia Register of Regulations on May 23, 2022, posted on the Commission's website, and sent to interested persons. The Order to Take Notice invited all interested persons to participate and required that any comments or requests for a hearing on the proposed regulations or Disclosure Form be submitted in writing on or before June 6, 2022.

Comments on the proposed regulations and Disclosure Form were timely filed by the Small Business Finance Association; the Revenue Based Finance Coalition; the Electronic Transactions Association; Forward Financing LLC; and PayPal, Inc. The Commission did not receive any requests for a hearing.

On June 15, 2022, the Bureau filed an Initial Response to Comments in which it recommended that the Commission: (1) temporarily postpone the adoption of the proposed regulations; (2) temporarily authorize sales-based financing providers to use either the Disclosure Form or any disclosure form of their choosing provided that it contained all of the information specified in § 6.2-2231 of the Code and otherwise complied with Chapter 22.1; and (3) permit the Bureau to file a supplemental response to the comments by July 27, 2022. Through its June 30, 2022 and July 26, 2022 Orders,¹ the Commission: postponed the adoption of the regulations; authorized sales-based financing providers, pending further Commission order, to use either the formatting for the disclosure form that was appended to the Order to Take Notice or any formatting for the disclosure form of their choosing provided that it contained all of the information specified in § 6.2-2231 of the Code and otherwise complied with Chapter 22.1; and permitted the Bureau to file a supplemental response to comments by July 27, 2022.

On July 27, 2022, the Bureau filed its Supplemental Response to Comments ("Supplemental Response"). In its Supplemental Response, the Bureau further responded to the filed comments and also recommended that the Commission amend various sections of the proposed regulations and the proposed formatting for the Disclosure Form.

NOW THE COMMISSION, having considered this matter, finds that the proposed regulations and proposed formatting for the Disclosure Form should be amended to incorporate the specific changes the Bureau recommended in its Supplemental Response, with one exception. We decline to fully adopt the Bureau's recommended definition of the term "sales-based financing broker" or "broker" in proposed Rule 10 VAC 5-240-10 A. Rather, to make clear that the Rule seeks only to clarify the statutory definition of "sales-based financing broker" or "broker," the Bureau's proposed addition to Rule 10 VAC 5-240-10 A shall be modified by changing "except" to "with clarification." The Commission finds that the modified proposed regulations should be adopted effective October 1, 2022.

Further, sales-based financing providers should be required to use the formatting for the Disclosure Form, as modified herein and attached hereto ("Modified Disclosure Form"), beginning one-hundred and twenty (120) days from the date of entry of this Order. In the interim, sales-based financing providers should be permitted to use either the formatting for the Modified Disclosure Form attached hereto or any formatting for the disclosure form of their choosing provided that it contains all of the information specified in § 6.2-2231 of the Code and otherwise complies with Chapter 22.1. The Commission expresses appreciation to all those who submitted written comments.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations, as modified herein and attached hereto, are adopted effective October 1, 2022.

(2) Sales-based financing providers shall use the formatting for the Modified Disclosure Form attached hereto beginning one-hundred and twenty (120) days from the date of entry of this Order. In the interim, sales-based financing providers may use either the formatting for the Modified Disclosure Form or any formatting for the disclosure form of their choosing provided that it contains all of the information specified in § 6.2-2231 of the Code and otherwise complies with Chapter 22.1.

(3) This Order, the attached regulations, and the attached Modified Disclosure Form shall be made available on the Commission's website: scc.virginia.gov/pages/Case-Information.

(4) The Commission's Office of General Counsel shall provide a copy of this Order, the regulations, and the Modified Disclosure Form to the Virginia Registrar of Regulations for appropriate publication in the Virginia Register of Regulations.

(5) This case is dismissed.

A COPY of this Order along with the attached regulations and Modified Disclosure Form shall be sent by the Clerk of the Commission to the Commission's Office of General Counsel and to the Commissioner of Financial Institutions, who shall send by e-mail or U.S. mail a copy of this Order along with the attached regulations and Modified Disclosure Form to every person who filed comments in this matter, and to such other interested persons as he may designate.

______________________________

Chapter 240

Sales-Based Financing

10VAC5-240-10. Definitions.

A. The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Chapter 22.1" means Chapter 22.1 (§ 6.2-2228 et seq.) of Title 6.2 of the Code of Virginia.

"Finance charge" [ has the meaning assigned to it in 12 CFR 1026.4 regardless of whether a provider or sales-based financing transaction is subject to Regulation Z (12 CFR Part 1026) or the Truth in Lending Act (15 USC § 1601 et seq.) for purposes of Chapter 22.1 and this chapter means the amount of any and all costs of the sales-based financing provided to the recipient, represented as a dollar amount, including all charges that would be included in the finance charge under 12 CFR 1026.4 if the transaction was a consumer credit transaction and the provider was a creditor under Regulation Z (12 CFR Part 1026). This definition is intended to require finance charges to include any charge that would be a finance charge under 12 CFR 1026.4, regardless of whether the transaction would be considered an "extension of credit" or the provider would be considered a "creditor" under Regulation Z ].

"Registrant" means a person registered under Chapter 22.1.

[ "Sales-based financing broker" or "broker" has the meaning set forth in § 6.2-2228 of the Code of Virginia, with clarification that the term shall not include a bona fide employee of a provider or broker who is acting on behalf of the provider or broker. ]

B. Other terms used in this chapter shall have the meanings set forth in § 6.2-100 or 6.2-2228 of the Code of Virginia.

10VAC5-240-20. Registration; additional requirements; surrender of registration.

A. A provider or broker shall register with the commission in accordance with procedures established by the commissioner. A completed application for registration shall be accompanied by the initial registration fee prescribed in § 6.2-2230 of the Code of Virginia and any information relating to the application that the commissioner may require.

B. Every provider or broker shall (i) be organized under the laws of Virginia; or (ii) if not organized under the laws of Virginia, obtain authority to transact business in Virginia as a foreign entity in accordance with the provisions of Title 13.1 of the Code of Virginia unless such provider or broker is not required to obtain such authority. Every provider or broker, either organized under the laws of Virginia or who has obtained authority to transact business in Virginia as a foreign entity, shall continuously remain authorized to transact business in Virginia under Title 13.1 of the Code of Virginia.

C. A registrant shall notify the bureau in writing within 10 days [ of after ] any change to either its name or contact information.

D. A registrant may surrender its registration by providing written notice to the bureau along with the effective date of the surrender.

10VAC5-240-30. Sales-Based Financing Disclosure Form.

A. A provider shall furnish a completed Sales-Based Financing Disclosure Form to every recipient at the time the provider extends a specific offer of sales-based financing to the recipient. [ When a provider allows a recipient to choose from multiple sales-based financing options or to customize the terms of the sales-based financing, a provider shall furnish a Sales-Based Financing Disclosure Form only for the specific offer that the recipient selects. ] The format of the Sales-Based Financing Disclosure Form shall be prescribed by the commission.

B. If any information required by the Sales-Based Financing Disclosure Form is inapplicable, the provider shall enter "Not Applicable" or "N/A" in the space provided. [ In order to mark a box that appears on the Sales-Based Financing Disclosure Form, the provider shall insert a check mark or "X" in the applicable box. ]

C. If any information required by the Sales-Based Financing Disclosure Form does not fit within the space provided on the first page of the form, the provider shall (i) insert a check mark or "X" in the "SEE PAGE 2" box that appears within the applicable section of the first page, (ii) insert a check mark or "X" in each applicable box on the second page of the form, (iii) disclose the information in the large box on the second page of the form, (iv) furnish a recipient with both pages of the completed form, and (v) require the recipient to sign and date both pages of the completed form. A provider may elect to furnish a recipient with the second page of the form even though all of the required information fits on the first page provided that the provider enters "Not Applicable" or "N/A" in the large box on the second page.

D. A provider shall not give a recipient a Sales-Based Financing Disclosure Form that contains any false or misleading information. The Sales-Based Financing Disclosure Form shall be furnished to a recipient as a separate document from any other contracts, agreements, papers, notices, or other disclosures provided to the recipient, but it may be mailed or transmitted in a package or electronic file that contains other documents. A provider shall not modify the prescribed format of the Sales-Based Financing Disclosure Form, or either append to or include within it any information that is not required by this form. [ However, if a provider is not furnishing a recipient with the second page of the Sales-Based Financing Disclosure Form because all of the required information fits within the first page of the form, then the provider may remove all "SEE PAGE 2" references and the corresponding boxes from the form. ]

E. A provider shall require a recipient to sign and date the Sales-Based Financing Disclosure Form at the time the recipient accepts the provider's offer. A provider may obtain a recipient’s electronic signature on the Sales-Based Financing Disclosure Form if the provider complies with all applicable provisions of the Uniform Electronic Transactions Act (§ 59.1-479 et seq. of the Code of Virginia), the Electronic Signatures in Global and National Commerce Act (15 USC § 7001 et seq.), and any other applicable laws. [ A provider is required to obtain only one signature from the recipient on each Sales-Based Financing Disclosure Form. ]

F. A provider shall provide a recipient with the Sales-Based Financing Disclosure Form in a format that the recipient may retain. This includes a hard copy or electronic document that the recipient can save for future reference.

G. If a recipient elects to pay off or refinance the sales-based financing prior to full repayment, a provider shall furnish the recipient with an updated and completed Sales-Based Financing Disclosure Form that contains the information as of the date that the sales-based financing is paid off or refinanced [ (i.e., immediately prior to the pay off or refinancing) ]. The provider shall comply with subsections B through F of this section in connection with the updated Sales-Based Financing Disclosure Form. The provider shall require a recipient to sign and date the updated Sales-Based Financing Disclosure Form at the time the recipient pays off or refinances the sales-based financing.

10VAC5-240-40. Commission authority.

The commission may, at its discretion, waive or grant exceptions to any provision of this chapter for good cause shown.

FORMS (10VAC5-240)

[ Sales-Based Financing Disclosure Form (eff. 7/2022)

Sales-Based Financing Disclosure Form (eff. 10/2022) ]